By Dan Molinski
-U.S. oil prices surged toward new four-month highs Friday and were en route to their biggest quarterly gain since 2009 as global supplies tighten and risk appetite grows amid rising stock markets and a weaker dollar.
–West Texas Intermediate futures, the U.S. oil benchmark, climbed 2% to $60.47 a barrel on the New York Mercantile Exchange. Prices are 32% higher for the quarter and on track for their largest quarterly gain since the second quarter of 2009, although the fourth quarter of last year saw oil’s biggest quarterly drop in four years.
–Brent crude, the global oil benchmark, rose 1.6% to $68.16 a barrel on London’s Intercontinental Exchange.
Re-balancing: Oil prices haven’t closed above $60 a barrel since November, but were on track to do so Friday. Investors have become increasingly confident over the past week that global oil-oversupply problems in late 2018 have been mostly resolved as the Organization of the Petroleum Exporting Countries and Russia make good on promises to cut production, said Peter Cardillo, chief market economist at Spartan Capital.
“The market is rebalancing, it’s working off the excess stockpiles it had seen,” Mr. Cardillo said. “You now have Russia playing ball with OPEC, and their agreement to wait until June to have another meeting rather than April shows they mean business.”
He added that the market’s surge Friday morning also shows investors have already shrugged off another Twitter posting Thursday morning from President Donald Trump urging OPEC to pump more oil because prices were getting too high.
Brexit: Friday was supposed to be Brexit day, the day the U.K. was initially scheduled to leave the European Union. But instead lawmakers were preparing to vote for a third time on Prime Minister Theresa May’s Brexit deal later Friday. That was weakening the dollar, and in turn giving oil prices a boost since crude oil is bought and sold in greenbacks. The WSJ Dollar Index was recently 0.1% lower.
However, Alfonso Esparza, senior market analyst at Oanda, said that following the vote, the dollar may see renewed strength that could then push oil prices lower.
“I don’t expect this to hold for long as Brexit developments do not forecast a solid outcome today,” Mr. Esparza said. “Safe havens could be in high demand in the afternoon as investors cut their exposures going into the weekend, to the benefit of the U.S. dollar. A stronger dollar will once again put crude on the back-foot.”
Spending Cuts: As U.S. oil prices rise above $60 a barrel, there is much debate around what exploration and production companies might do with their improving cash-flow picture, said analysts at Evercore. “We do not believe E&P’s will increase capital expenditure mid-year in 2019 given the pressure they are feeling to spend within their cash flows and return capital to shareholders,” the analysts said in a research note. “Therefore we believe that the industry is likely to again experience budget exhaustion in the second half of the year, similar to 2018.”
The Evercore analysts said a review of more than 60 exploration and production companies’ capital expenditure plans reveals that 2019 spending is now expected to fall by 5% year-over-year. That would be a reversal from 11% growth plans for the same companies when they surveyed them in November, before oil prices fell into the $40s-per-barrel in December.
–The EIA on Friday releases its monthly report on oil production, for the month of January.
Write to Dan Molinski at Dan.Molinski@wsj.com
(END) Dow Jones Newswires
March 29, 2019 10:00 ET (14:00 GMT)